Laney: Economic sectors appear brighter heading into 2013

November 29, 2012

HONOLULU - Hawaii's tourism industry continues its robust recovery, and now there are other economic bright spots, said economist Dr. Leroy Laney.

Laney recently spoke at the First Hawaiian Bank Business Outlook Forum at Blaisdell Concert Hall on Oahu.

"Those bright spots - in a housing market that shows signs of turning, in retailing, in auto sales and in some other areas - are cause for cautious optimism as we head into 2013," said Laney, economic adviser to First Hawaiian Bank and professor of economics and finance at Hawaii Pacific University.

"Our gradual recovery following the 2008 and 2009 Great Recession has been very slow, like everywhere else, but on a more optimistic note, it has been fairly steady."

Laney forecasts a 2 percent rise in job growth in 2013. "Job growth could come in at just over 1.0 percent this year, and, as the recovery takes hold, could accelerate to 2.0 percent in 2013. Other than the visitor industry, the strongest categories will likely be services including healthcare, wholesale and retail trade. Government job growth is likely to be one of the bigger drags on overall job creation," he said.

He projects that the unemployment rate will fall to 5.7 percent next year. "Hawaii's jobless rate could end up in the mid-5 percent range for 2013, but it would take some unforeseen positive development to take it below 5 percent," he said.

Laney forecasts that inflation will rise 2.5 percent in 2013: "Fragile global economic conditions help keep a lid on energy prices. That can be especially good for Hawaii because of the impact on airfares. Overall inflation should hover in the 2 percent range, maybe coming down if we're lucky. Even with a potential rebound in home prices, it will take a while for rises in the shelter component of the (Consumer Price Index) to kick in."

Visitor arrivals are projected to rise 3.5 percent next year. "Visitor arrivals growth could easily break a strong 9 percent in 2012. But strong growth this year means it will be hard to sustain it in 2013. The visitor industry should remain strong, and added airlift will help. But hotel occupancies have been running so high this year in many places that there doesn't remain much room for expansion close to what we have seen this year," Laney commented.

Real personal income is projected to increase 2.0 percent in 2013. "Inflation-adjusted personal income growth has been fluctuating around 1 percent after dipping into negative territory in 2008 and 2009. In 2013, with any consolidation in the recovery and an end to state pay cuts, it could hit 2 percent," Laney said.

Real gross domestic product is projected to rise 2.3 percent next year. Laney commented, "Hawaii's economy lives or dies by its main export industry, tourism. But why has visitor industry strength not yet spread to other sectors of the economy?" He offered two reasons.

"First, in Hawaii and practically everywhere else, there have been enormous reductions in personal wealth. The Federal Reserve found that the median net worth of American households - assets such as homes, cars and financial assets minus any debt - fell by almost 40 percent from 2007 to 2010. Such a reduction put that median household back to 1992, and it takes time to recover from that. That, plus job uncertainties, have taken a toll on consumer and business confidence, especially smaller businesses. Residential building ground to a complete halt, and local government was forced to take draconian measures," Laney said.

"Second, it could be a lot worse. If you want to live in North Dakota, the unemployment rate is around 3 percent. But in California it's close to 11 percent; in Nevada just under 12 percent. So maybe 'lucky you live Hawaii' does have some meaning!"

Laney offered these views of major economic sectors:

Tourism - "After the dark days of 2009, Hawaii's visitor industry snapped back with an alacrity that surprised some. It had something of a relapse in mid-2011 with Japan's tsunami, but has come back strongly again this year. Added airlift has helped, from Alaska and Allegiant, for example, as well as added routes by Hawaiian Airlines. Smaller cities on the Mainland are now being served with direct flights, and added international flights will bring more visitors from emerging markets. Future growth will depend more on those emerging markets rather than more mature sources of visitors."

Construction - "Construction has been one of the biggest lagging sectors, and construction jobs are still nearly 30 percent below the 2007 peak. Much of that has been due to the dearth of residential construction, but some life is returning."

Retail - "The retailing tax base is strong, in 2011 and early 2012 reaching a rate of growth matching or sometimes exceeding the boom years of the mid-2000s. First Hawaiian Bank data on credit card spending shows growth still concentrated in categories influenced by visitors, but there are signs that spending is spreading to other sectors, such as automotive, home improvement, supermarkets and home furnishing."

Vehicle Sales - "New vehicle registrations in Hawaii were up an impressive 20 percent in the first half of 2012, and the Hawaii Automobile Dealers Association projects a 16 percent increase for the entire year followed by another 9 percent growth in 2013, bringing the total to 47,000 vehicles. That's well below the peak of over 70,000 in 2005, but the direction is right. In 2009, the low was under 34,000."

Jobs - "Most people perceive job creation to be a better gauge of their overall welfare than other economic measures, and this presents a more somber picture. Overall, Hawaii jobs still hover about 5 percent below their peak before the Great Recession. Until that previous peak is reached, we are technically still in a recovery, not an expansion. Job growth has been spread unevenly across sectors. Job creation in the visitor industry has dwarfed all other sectors, which added together are a mixed bag."